United Fire Group, Inc · NASDAQ:UFCS
United Fire — NYSSA Conference 2014
47 slides from United Fire's conference presentation, Mar 17, 2014
Slide 1: Insurance – NYSSA Conference, March 18, 2014
INSURANCE NYSSA CONFERENCE — March 18, 2014
Slide 2: Table of Contents
TABLE OF CONTENTS Company Overview P&C Companies Life Company 2013 Highlights 2020 Vision Life Company Objectives Enterprise Risk Management Additional Issues / Actions Workers’ Comp Line Update Small Business Unite Update 2014 Reinsurance Changes New Branch for E&S Usage-based Driving Brand Refresh
Slide 3: Company Overview
COMPANY OVERVIEW United Fire Group, Inc. (NASDAQ: UFCS) e Super—regional ¢ Provider of a complete line of insurance products ¢ Founded in 1946; and based in Cedar Rapids, Iowa ¢ Six regional offices plus a new office in Los Angeles, CA ¢ $783 million in shareholders’ equity at 12/31/2013 ° Approxima
Slide 4: Company Overview: P&C Companies and United Life
COMPANY OVERVIEW P& C Companies ¢ Rated “A” (Excellent) by A.M. Best * 90% commercial lines / 10% personal lines ¢ Licensed in 43 states and the District of Columbia, active in 33 ¢ Represented by approximately 1,200 independent agencies ¢ At 12/31/2013, $723 million in net written premiums United L
Slide 5: 2013 Highlights
2013 HIGHLIGHTS ¢ GAAP combined ratio improved to 94.8% from 101.2% ° Book value grew 7% to $30.87 ° Catastrophe losses were $30 million or 4.4 percentage points of the combined ratio, down slightly from our expected CAT load of 6% ° GAAP expense ratio was consistent at 31.8% ¢ Pure loss ratio impro
Slide 6: Current and Long-Term Objectives
CURRENT AND LONG-TERM OBJECTIVES 2020 Vision e Expand our agency plant and penetration e Leverage our existing product portfolio e Expand our geographic footprint e Enter the Excess & Surplus lines ° New Branch in Los Angeles as of February 1, 2014 ° Continue to capitalize on strategic growth opport
Slide 7: Life Company — Objectives
LIFE COMPANY — OBJECTIVES ¢ Geographic expansion — eight new states in 2013 (currently receiving premium in five of those states) ¢ Life / Fixed Annuity mix — goal is 50/50 in order to reduce exposure to interest sensitive products ° Lapse ratio under 6% (5.5% in 2013) ¢ Automation commitment (ease
Slide 8: Enterprise Risk Management (ERM)
ENTERPRISE RISK MANAGEMENT (ERM) " ERM management committee meets quarterly " Board of Directors risk management committee oversees ERM effort — Management reviews risk metrics with risk management committee — Risk appetite statement developed — Economic capital modeling used to assess risk = ORSA
Slide 9: Additional Issues / Actions: Workers' Compensation Update
ADDITIONAL ISSUES / ACTIONS Workers’ Compensation Line Update — Addressing Severity " Underwriter referrals on all renewals with high hazard classes = New “Cost Control” program with heavy focus on safety & injury management = Focus on appropriate rate vs. hazard class = Additional/advanced underwri
Slide 10: Additional Issues / Actions: Small Business Unit Update
ADDITIONAL ISSUES / ACTIONS Small Business Unit Update = Assessment perspectives BOP Written Premium/Growth — Enhanced workflow $70,000 7 — Enhanced class offerings 13.7% — Enhanced coverage options $00,000 98.5% — Enhanced pricing sophistication $50,000 + = Distinct profit center $40,000 - = 2013 g
Slide 11: Additional Issues / Actions: 2014 Reinsurance Programs
ADDITIONAL ISSUES / ACTIONS 2014 Reinsurance Programs ° Catastrophe program ¢ Renewed with ROL (rate on line) down 15% and adjustable rate down 25% ¢ $230 million excess of $20 million retention e No co-participation on losses ¢ 96-hour limit rather than 72-hour limit Core program ¢ $2 million reten
Slide 12: New Branch Office for E&S Line of Business
ADDITIONAL ISSUES /ACTIONS New Branch Office for E&S Line of Business = Effective February 1, 2014 = Located in Los Angeles, California = First policies effective in 1Q2014 = Initially write business in states of CA, OR, NV, AZ
Slide 13: Usage-based Driving / Telematics
ADDITIONAL ISSUES / ACTIONS Usage-based driving / Telematics = Advantages — Driver behavioral changes — Analytics (health of auto, youth-driving trends) — Usage-driven risk assessment for premium adequacy = Current program — Scoping process completed in 2013 — Pilot program in 2014 Image of UBI devi
Slide 14: Branding Refresh Project
ADDITIONAL ISSUES / ACTIONS Branding “Refresh” Project = “Refreshed” logo = More unified look and feel across all regional offices = Unified message (both internal and external) = Creation of a dynamic identity — UFG rather than United Fire Group = Newly appointed VP of Marketing vis)
Slide 15: Smart Phone Apps
ADDITIONAL ISSUES / ACTIONS Smart Phone Apps Tap into United Life for: ¢ Customer searches ¢ Policy and client details ¢ Term and Whole Life quotes ¢ Company publications ¢ Current interest rates ¢ Company contacts (P&C App currently under development for 2014)
Slide 16: Capital Management
CAPITAL MANAGEMENT * Dividend — currently $0.18 per quarter ¢ Share repurchases ¢ Share repurchase authorization until August 2014 ¢ Debt — none ¢ We believe the best use of our capital is to write new, adequately priced business, which was a focus in 2013 and will continue to be a focus in 2014. vi
Slide 17: Portfolio Management
PORTFOLIO MANAGEMENT Conservative Investment Highly Rated Fixed Income Philosophy Portfolio Manage our own portfolios 40% ° We maintain a fixed-to-equity ratio of 90/10 35% 30% + — How we are addressing the low interest rate sep L environment — — * We continue to purchase quality investments 70” | r
Slide 18: Economic/Market Conditions
ECONOMIC/MARKET CONDITIONS Positive rate environment for nine quarters Rate increases are expected through 2014 Positive audit premium for the last nine quarters Our insureds continue to add exposures at renewal ¢ Policy count growth opportunities
Slide 19: Rate Improvement
RATE IMPROVEMENT 8.00% 4.00% 0.00% 4.00% ~ -8.00% -12.00% -16.00% Rate Change Comparison Re os sos! as! so? Roig Rei os o® 0 io Roig so Rog sor Prot ——UFG ——MarketScout —CIAB CLIPS Sources: marketscout.com; ciab.com; towerswatson.com vis)
Slide 20: Premium Growth
PREMIUM GROWTH Net Written Premiums ($ in 1,000's) $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 a $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 21: Organic Growth
ORGANIC GROWTH YTD 2012 Growth Components Rate INCFEASES...... ce eeeesceseeteeseees 6.0% New Business...... one 3.5% Exposure INCreaSES....... eee 3.0% Overall Organic Growth............ 1Q2013 6.8% 1.8% 0.5% 9.1% 2Q2013 5.2% 3.0% 0.8% 9.0% 8.0% 3.1% 4.1% 15.2% 3Q2013. 4Q2013 YTD 2013 6.2% 7.7% 2.4
Slide 22: Underwriting Performance
UNDERWRITING PERFORMANCE GAAP Combined Ratio Catastrophe Loss Contribution 140% 0% 120% 26 18.6% 13.8% 80% + 45.4% 100% 4 70% 4 80% 4 ES 50% + 60% | 40% + 40% + 30% + 20% + 20% ~ 10% + 0% T 1 , T 7 1 1 0% + 2007, «2008 = 2009 2010S 20119-2012. 2013 2007 2008 2009 2010 2011 2012 2013 ™ Non-cat Losses
Slide 23: Financial Performance
FINANCIAL PERFORMANCE Book Value Per Share ROE averaged 7.6% (including unrealized gains/losses) Between 2001 and 2013 $35.00 —- $30.87 $30.00 $25.00 $20.00 $15.00 $10.00 ~ $5.00 + 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 24: Reserving
RESERVING 20% Prior Year Development as % Premiums Earned 15% Median: 9.0% 10% 5% 1995 1996 1997 1998 += 1999-2000» 2001. «« «2002» 2003» 2004 «20052006 «= 2007 «Ss «2008 «= 2009S 2010S 2011.2 2012-2013, NOTE: 2008 and 2009 reflect litigation costs associated with Hurricane Katrina
Slide 25: Total Investment Yield
TOTAL INVESTMENT YIELD Investment Yield 7.0% 6.0% i 50% ae NES 4.0% _ 3.0% eS — 2.0% + 1.0% 0.0% 2004 | 2005 2006 L 2007 2008 2009 2010 2011 2012 2013 Life Insurance Segment 6.3% 6.1% 64% 5.9% 6.2% 5.2% 5.0% 45% 41% 4.1% P&C Insurance Segment 44% | 4.9% 4.7% 5.5% 3.7% 3.4% 3.7% 2.8% 3.1% 3.0% Total
Slide 26: Portfolio Management: Equity and Total Portfolio
PORTFOLIO MANAGEMENT Private Telecom Svc Consumer Placements Materials 3.2% _____ Discretionary Wi 4.1% 2.6% , Info Tech \ 4.1% Consumer_—__ Staples 6.0% | \ \ \ \ > — \ \ \\ \ \\ A A US. “——__ Treasury Bonds Equity Portfolio Total Portfolio vis)
Slide 27: Stock Price Improvement
27 STOCK PRICE IMPROVEMENT $35.00 $30.00 jk | | ; ¢ | é | High 5. $25.00 ; , nse ? © Close $20.00 es a See ay ee aa s $ FS $ s o os os we oy ss ee HS ES 52-week high 34.21; low $22.11; current $29.00; book value $30.87 vis)
Slide 28: Competitive Advantages
COMPETITIVE ADVANTAGES ¢ Local market knowledge ¢ Strong agency relationships ¢ Superior underwriting ¢ Exceptional customer service ¢ Fair and ethical claims handling ¢ Efficient and effective technology ° Value-added services ¢ Service center Loss control Certificate of insurance processing Ease o
Slide 29: Key Investment Considerations
KEY INVESTMENT CONSIDERATIONS Expanded geographic presence through acquisition Growth opportunities * Capitalizing on recent acquisitions ¢ Organic growth in existing markets Decentralized underwriting and marketing Opportunities for efficiencies Reserving * Historically reported favorable loss rese
Slide 30: In Conclusion...
IN CONCLUSION... = Solid margin expansion — Approximately 3 points in our core (without CATs and prior period reserve development) loss ratio in 2013; — Strong expectation of continued margin expansion in 2014 as earned premiums will continue to grow; — Loss cost inflation remains muted; and underwr
Slide 31: Appendix
Appendix
Slide 32: Appendix
APPENDIX Senior Management Slide 33 Capital Mgmt. Philosophy Slide 44 4Q13 and 2013 Highlights Slide 34 2014 Product Niches Slide 45 Financial Summary Slide 35 Top Eight States Slide 46 P&C Financial Highlights Slide 36 Notes Slide 47 Definitions/Reconciliations Slide 37 Notes (additional) Slide 48
Slide 33: Senior Management
SENIOR MANAGEMENT RANDY A. RAMLO MICHAEL T. WILKINS DIANNE M. LYONS President/CEO Executive Vice President Vice President/CFO Years at UFG: 30 Years at UFG: 28 Years at UFG: 30 Years in Industry: 30 Years in Industry: 28 Years in Industry: 30 >} DAVID E. CONNER BARRIE W. ERNST NEAL R. SCHARMER Vice
Slide 34: 4Q13 and 2013 Highlights
4Q13 and 2013 Highlights Three Months Ended December 31, Twelve Months Ended December 31, 2013 2012 2013 2012 EPS - Operating $1.00 ($0.12) $2.76 $1.44 Combined Ratio - GAAP 89.0% 111.1% 94.8% 101.2% ROE 10.1% 5.6% Catastrophe Losses $3.0 mm $30.2 mm $30.2 mm $64.7 mm Impact to Combined Ratio 1.7 pt
Slide 35: Financial Summary
w ol FINANCIAL SUMMARY (GAAP, $ in thousands except per share values) Selected Income Statement Items Net Premiums Earned Net Income / (Loss) Realized Gains / (Loss), net of tax Operating Earnings / (Loss), net of tax Selected Balance Sheet Items Cash and Investments Total Assets Shareholders’ Equit
Slide 36: P&C Operating Segment Financial Highlights
P&C OPERATING SEGMENT FINANCIAL HIGHLIGHTS (GAAP, § in thousands except per share values) 2013 2012 2011 2010 2009 Commercial Net Premiums Written $ 640,539 $ 576,076 $ 481,520 $ 363,806 $ 380,727 Net Premiums Earned 613,878 551,846 464,942 370,479 394,000 Loss and Loss Settlement Expenses 384,629 3
Slide 37: Definitions and Reconciliations Not Prepared in Accordance with GAAP
Ww DEFINITIONS AND RECONCILIATIONS NOT PREPARED IN ACCORDANCE WITH GAAP Net Income / (Loss) $ 76,140 § 40,212 $ 11 $ 47,513 $ (10,441) $(13,064) $111,392 Realized Investment Gains / (Losses), after tax $5652 $ 3544 $ 4186 $ 5518 $ (8,566) $ (6,749) $ 6,286 Net Operating Income / (Loss) $ 70,488 $§ 3
Slide 38: Exposure Management
EXPOSURE MANAGEMENT Managing Catastrophe Exposure HURRICANE PML: 100-YEAR RETURN PERIOD $300 ¢ 100-year PMLs below 2006 levels despite expanded portfolio due to Mercer 8250 Group transaction @RMS BAIR $200 ¢ Managing geographic exposures to reduce coastal and other risks sis ¢ Updating policy terms
Slide 39: Exposure Management: Modeled vs. Actual Losses
EXPOSURE MANAGEMENT Modeled vs. Actual Losses from Historical Storms Avg Modeled _— Actual Actual to Avg (S$ in millions) Gross Loss ($) Loss ($) | Model Miss (%) Katrina 483.7 389.4 24,2 Rita 49.2 34.9 41.2 Gustav 60.7 14.5 319.0 Ike 22.7 30.0 (24.7) Isaac 4.1 3.3 22.8 Irene 17.2 6.4 168.3 Sandy Do
Slide 40: Expertise with Main Street Businesses
EXPERTISE WITH “MAIN STREET” BUSINESSES NWP by Product Line Top 15 Classes Show Main Street Focus Fire & Allied Lines 213.5 29.5% Concrete Construction Including Flat Work 8 alromepiles ID tv Carpentry - residential Ul Other Liability 210.9 29.2% Excavation 7 Workers' Compensation 85.4 11.8% Suystay
Slide 41: Agency Philosophy
AGENCY PHILOSOPHY ¢ We continually monitor agencies for compatibility ° Criteria: loss ratio, volume, relationship ° We seek “top three” position (as measured by direct premiums written) ° We seek agencies that focus on providing value-added services to their customers * Our best agencies are medium
Slide 42: Commission Strategy
COMMISSION STRATEGY = Be competitive, but not excessive = Support our corporate goals by encouraging agents to place and retain business in geographic locations targeted for organic growth = Effectively balance commissions with other incentives — As part of a total compensation package
Slide 43: Reserving and Claims Handling Philosophy
RESERVING Claims Handling Philosophy FAIR claims service FAST claims service Use of outside adjusters is infrequent, allowing us to more closely control the adjusting function We employ top industry fraud predictive analytics technology Reserving Philosophy ¢ We historically reported favorable loss
Slide 44: Capital Management Philosophy
CAPITAL MANAGEMENT PHILOSOPHY Strong economic capital position Prudent reinsurance programs Outstanding debt paid off in July 2012 History of consistently conservative reserves Use of capital — acquisition of Mercer Insurance Company Avg. Price No. Shares Total Price Share Repurchase Per Share (S) R
Slide 45: 2014 Product Niches
2014 PRODUCT NICHES Religious Institutions — Churches Auto Service and Repair Garages Garbage Refuse Haulers Condominiums Small Artisan Service and Repair contractors Retail Small Business (Business Owners Program) Land Improvement Contractors (Excavation, Land Grading) Commercial Output Program (Ma
Slide 46: Top Eight States
TOP EIGHT STATES Twelve months ended 12/31/13 - NPW DPW Property/Casualty (S in millions) S % Texas 104.8 13.9% lowa 93.0 12.3% California 79.3 10.5% New Jersey 52.0 6.9% Missouri 47.8 6.3% Illinois 38.0 5.0% Louisiana 36.4 4.8% Colorado 36.0 4.8% All Other States 267.4 35.5% utd)
Slide 47: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of